The board of Yahoo has rejected a $31-per-share takeover offer from Microsoft.

"After careful evaluation, the board believes that Microsoft's proposal substantially undervalues Yahoo including our global brand, large worldwide audience, significant recent investments in advertising platforms, and future growth prospects, free cash flow, and earnings potential, as well as our substantial unconsolidated investments," the Yahoo board said in a statement. "The board of directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders."

Full coverage of Microsoft's bid for Yahoo is found here.

The New York Times' DealBook sees the rejection letter as leaving the door open to negotiations.

"Yahoo’s statement seemed to lack the hard edge of some other rejections of late," DealBook says. "It also didn’t spend lots of time touting the virtues of an independent Yahoo, which is a common strategy when a company is fending off an unwanted acquirer."

Indeed, a growing consensus is that today's rejection is aimed at fulfilling the board's duties to shareholders by trying to extract a higher price from Microsoft.

As Rob Hof of BusinessWeek, put it, "Although things could get ugly for awhile, I still think this may only delay the inevitable."

For one, there is no other credible bidder out there who could match Microsoft's offer. While shares of Microsoft have declined recently, it is still offering a very rich premium to Yahoo's stock price.

So is Yahoo undervalued? 

David Gaffen on the Wall Street Journal's MarketBeat blog cites analysts at Sanford Bernstein who say that Yahoo's assets are "potentially worth $37 if it outsources paid search to Google" and perhaps $40 if Yahoo were to acquire certain AOL assets. "But that's a long, winding drive through the woods on a lot of assumptions," Gaffen says.
 
And if there is no offer from anyone else on the table, Microsoft is not going to bid against itself.

The search for alternatives has led Yahoo to explore merger talks with AOL, if the Times of London is to be believed. Yet while such a deal might make strategic sense and would probably make shareholders of Time Warner happy, it is difficult to see how it would do anything for Yahoo shareholders.

And Yahoo shareholders are increasingly the kind of investors who want the highest price now, rather than wait for the fruits of a long-term strategy. Andrew Ross Sorkin of the New York Times notes that in recent weeks millions of Yahoo shares have been bought by "short-term-oriented hedge funds that typically favor a quick sale."

That shift will help Microsoft as it prepares to lobby Yahoo shareholders on the merits of a merger. The Times notes that Microsoft could also put its offer directly to shareholders, increasing the pressure on Yahoo's board to negotiate.

Still, the leaks about Yahoo's rejection and possible talks with AOL, says Henry Blodget in Silicon Alley Insider, "have taken the company's perceived position in this negotiation from 'no-options-and-might-not-even-get-back-to-$31-a-share' to 'several-options-and-won't-take-less-than-$35-a-share.'"

Shares of Yahoo are up 1.5 percent today, at $29.64.

Michael Arrington on TechCrunch acknowledges that a deal may be inevitable. But he says he is excited to see Yahoo "being bold."

"It may be a whimper, but it's a bold whimper," he says.